It only costs $18 a week more on average to service a mortgage than pay market rent for first home buyers purchasing in June, according to CoreLogic data.
In Christchurch, it was $68.50 cheaper per week on average to pay a new mortgage rather than carry on renting, but new owners in Auckland and Wellington aren’t so lucky, and usually find themselves spending roughly $100 or more a week.
The figures are based on prices paid for first homes in June, a 2.5 per cent mortgage interest rate and 30 year repayment term.
First home buyers in Auckland usually find themselves paying $127 more per week compared to when they rent.
They reveal the advantages first home buyers have if they are able to save a 20 per cent deposit and get on the ladder, paying a comparable amount in order to pay off an asset rather than put money in landlords pockets.
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However, CoreLogic chief property economist Kelvin Davidson said the sums didnt take into account other expenses that came with owning (such as rates, insurance, and maintenance) or the impact interest rate increases could have.
Saving money after buying in Auckland
Aucklander Sophie Lawson says buying was the right choice, even if interest rates go up.
While it costs most Aucklanders more to buy than to rent, there are exceptions. Sophie Lawson and her partner bought their first home in March, and it is costing them at least $10 less a week than renting.
The couple was prompted to buy when they decided to move in together and could not find a suitable rental in central Auckland for less than $750 a week.
It was more than they wanted to pay, so they decided to buy.
They had to move from central Auckland to Te Atatu Peninsula to do so, but it was worth it, Lawson said.
We pay $2,970 on the mortgage each month, so its about the same as if we were renting. But we are not paying for someone elses mortgage, instead we are investing in something for ourselves.
Other benefits like greater security, not having flatmates, and feeling they are moving forward in life far outweigh any cost considerations, even if interest rates go up, she said.
Our houses value has gone up by $100,000 since we bought, so that gives us more to play with in terms of adjusting our rates set up before things change much.
Rising interest rates to hit mortgages harder than rents
Rising interest rates are likely to increase mortgage repayment amounts more than rents, Davidson said, because rents are constrained by what renters can afford to pay.
Meanwhile, with mortgage rates at record lows, even a small adjustment would have a big impact on repayment, he said.
The Reserve Banks most recent Monetary Policy Statement set a target of increasing the Official Cash Rate to 1.75 per cent by the middle of 2024, with the first interest rate hike likely to start in the middle of next year.
Youd expect at least that much in terms of mortgage rates, perhaps a bit more, Davidson said.
He predicted interest rates would rise to around 4.5 per cent in the next two to three years for a bog-standard one to two year fixed rate mortgage.
CoreLogic chief property economist Kelvin Davidson says banks are predicting interest rises as soon as next month.
Which is obviously a lot higher than its been, but a lot lower than it used to be.
We used to have 10-11 per cent in the mid-2000s.
Banks have predicted interest rates could rise as soon as next month.
Where it’s cheaper to own than rent
Auckland had the biggest difference between mortgage payers and renters in June, with the average new homeowner paying $127 more per week than a renting household.
Wellington wasnt far behind, with the average new homeowner paying roughly $96 more per week than a renting household.
In Hamilton the difference came to $42 per week, and in Dunedin the difference came in at $22.
CoreLogic data from the last three years shows the price of servicing a mortgage compared to paying market rent was always harder in Auckland and Wellington, whereas in Christchurch paying a mortgage became a more cost-affective option than the rest of the nation around mid-2019.
The big-picture trends for me in each of those areas is the relatively low and stable difference between renting and buying across NZ up until the last quarter or two, as falling interest rates broadly offset rising house prices, with Auckland and Christchurch improving off the back of flatter house prices and falling mortgage rates, Davidson said.
But of course the rebound in prices lately has outstripped any rental growth, and changed the relativities. Id expect that to continue as mortgage rates rise.
When asked why Christchurch was such an outlier, Davidson said it had been a flatter market for a long time.
It really has been the outlier in terms of price growth, he said.
Its certainly accelerated lately, but its starting at a lower point.
Paying the mortgage might cost more than paying the rent in some areas, but John Bolton, chief executive of mortgage broking firm Squirrel, said with interest rates as low as they were, from a financial perspective it was generally better to own than to rent.
While homeowners did have to factor in costs on top of the mortgage, such as rates, insurance and maintenance, there were wider benefits that came with owning a home, he said.
Not only is it a good, long-term investment which will see value growth, but it provides greater housing security. You cant get kicked out and your landlord wont sell your home from under you leaving you having to move.
Our system is engineered towards home ownership and that means there is more latitude for homeowners than there is for renters. If a homeowner gets into financial trouble, their bank will work pretty hard to help them.
It is also possible for people to make improvements, and add value, to a property they own, Bolton said. Renters dont have the ability to do that and quite often rentals are not in great condition.
With lots more people working from home these days, the home environment has become more important. So being able to adapt a property to your needs is another bonus of ownership.